The financial and housing sector correction in Canada and Europe: Why so different? What does this mean for recovery? March 9, 2009 Millan L. B. Mulraine.

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Presentation on theme: "The financial and housing sector correction in Canada and Europe: Why so different? What does this mean for recovery? March 9, 2009 Millan L. B. Mulraine."— Presentation transcript:

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The financial and housing sector correction in Canada and Europe: Why so different? What does this mean for recovery? March 9, 2009 Millan L. B. Mulraine Economics Strategist

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The spark for the global financial and economic crises was the sudden and dramatic correction in the U.S. housing sector Seeds of the crises were sown in the post-tech bubble era of easy credit It could be argued that the European housing market bubble was much bigger than in the U.S. Exposure to the Central and Eastern European economies (CEEE) has added another dimension to the European banking system crisis The Canadian banking and housing sectors have been spared the sudden correction that has plagued their European counterparts Key takeaways

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Fiscal response to CEE crisis – Support for CEE economies an imperative – Political vs economic costs – Fortunes of East and West intertwined National response to financial crisis inadequate to resolving a Euroean problem – Exposes soft under-belly of the EU financial sector – May be a factor in exacerbating the problem – Small countries suffer from inadequate scale and resources Response betrays crisis

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Coordinated fiscal response required Canadian model has virtues that may be relevant Unified regulatory/supervisory framework a necessity – Financial sector supervisory and regulatory functions remain fragmented and need to be consolidated – “Beggar thy neighbour policies” will lead to “race to bottom” European financial stability fund? – A number of countries has similar funding vehicles The way forward

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Canadian housing and financial sector correction is expected to be modest Mitigating the adverse impact of the economic crisis in the CEE will require significant financial resources Despite the aggressive actions so far, further losses and bank failures remain likely The way forward for Europe will be increased coordination in both fiscal and prudential policies A turning point in the financial crisis will come about when home prices begin rising The bottom line